Firestone Tire & Rubber Co. v. Bodle

• Decision Date: 15 November 1986
• Docket Number: No. C84-3706A.,C84-3706A.
• Citation: 645 F. Supp. 305
• Parties: The FIRESTONE TIRE & RUBBER COMPANY, et al., Plaintiffs, v. Russell R. BODLE, Commr., Defendant.
• Court: U.S. District Court — Northern District of Ohio

645 F. Supp. 305

The FIRESTONE TIRE & RUBBER COMPANY, et al., Plaintiffs, v. Russell R. BODLE, Commr., Defendant.

No. C84-3706A.

United States District Court, N.D. Ohio, E.D.

April 18, 1985.

On Motion November 15, 1986.

John M. Glenn, Buckingham, Doolittle & Burroughs, Akron, Ohio, for plaintiffs.

Douglas J. Powley, Asst. Director of Law, Akron Law Dept., Akron, Ohio, Patricia M. Ritzert, Asst. Director of Law, Akron, Ohio, for defendant Tax Com'r for the City of Akron.

On Motion for Attorney Fees November 15, 1986.

MEMORANDUM OPINION

DOWD, District Judge.

Plaintiffs, the Firestone Tire & Rubber Company and Virgil E. Arrington, filed the above-captioned case against defendant Russell R. Bodle, tax commissioner of the City of Akron, seeking a declaratory judgment pursuant to 28 U.S.C. §§ 2201 and 2202, and injunctive relief pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1132(a)(3)(A). In count I, plaintiffs claim that employer contributions by Firestone to employee benefit plans set up under ERISA, based on employees' reductions in salary, are exempt from municipal income tax because to tax such contributions would be violative of ERISA. In count II, plaintiffs allege that contributions made by Firestone to the benefit plans are not taxable income as defined in § 2 of the Akron municipal tax ordinance. Before the Court is defendant's motion to dismiss for lack of subject matter jurisdiction. The issue before the Court is whether plaintiffs' action for a declaratory judgment and injunctive relief gives rise to federal question jurisdiction pursuant to 28 U.S.C. § 1331 or whether plaintiffs' claims are subject to the "well-pleaded complaint rule" which precludes federal jurisdiction premised upon a federal question which only arises as a defense to a state law action. For the reasons which follow, the motion to dismiss is denied regarding count I and is granted regarding count II.

FACTUAL ALLEGATIONS

Plaintiffs allege Firestone is a fiduciary of two employee benefit plans which Firestone provides to its employees. Plaintiffs allege further that plaintiff Virgil E. Arrington is an employee of Firestone and is a participant, as defined by 29 U.S.C. § 1002(7), in the benefit plans. Plaintiffs allege the benefit plans are plans approved under ERISA and the Internal Revenue Code. Plaintiffs allege that the plans provide that employees may elect to accept a reduction in salary and to have Firestone contribute the deducted funds to the benefit plans.

It is undisputed that Firestone requested that the defendant Akron tax commissioner render an administrative ruling regarding whether the contributions to the benefit plans are taxable under the Akron Income Tax ordinance. The Akron tax commissioner held that employer contributions to the benefit plans based on employees' reductions in salary are subject to municipal income tax under Akron income tax ordinance no. 1298-1962. The holding of the Akron tax commissioner was affirmed on appeal by the Akron Board of Review. Plaintiffs allege that Akron is imposing on Firestone an obligation to withhold such tax from its employees' salaries, but that Firestone is not withholding such tax. Plaintiffs allege that withholding the taxes imposed by Akron would violate federal law, which preempts state law, as governed by ERISA, 29 U.S.C. § 1144(a). Furthermore, plaintiffs allege that the contributions made by Firestone to the benefit plans are not taxable income as defined under § 2 of the Akron municipal tax ordinance no. 1298-1962.

Plaintiffs request a declaration that ERISA, 29 U.S.C. § 1144(a) pre-empts Akron's municipal income tax ordinance; request an order enjoining the defendant tax commissioner from imposing the municipal income tax and from imposing an obligation on Firestone to withhold the income tax from the contributions to the benefit plans; and an order to pay plaintiffs' costs of the action pursuant to ERISA, 29 U.S.C. § 1132(g).

DISCUSSION AND LAW

Defendant asserts this Court lacks subject matter jurisdiction over this action because the action does not arise under a federal statute and there is not federal question before the Court. Defendant asserts further that this action is barred by the Tax Injunction Act, 28 U.S.C. § 1341 and that plaintiffs' interpretation of ERISA would violate the Tenth Amendment of the United States Constitution.

1. Federal Question Jurisdiction.

In the Declaratory Judgment Act, Congress provided:

In a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2201. Congress provided further that:

Further necessary or proper relief based on a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment.

28 U.S.C. § 2202. In the Declaratory Judgment Act, Congress did not expand the jurisdiction of federal courts, but rather, Congress expanded the remedies available in federal actions. Skelly Oil Co. v. Phillips Co., 339 U.S. 667, 671, 70 S.Ct. 876, 878, 94 L.Ed. 1194 (1950).

The federal jurisdiction on which plaintiffs' premise their request for a declaratory judgment is the federal question jurisdiction of this Court pursuant to 28 U.S.C. § 1331. Congress provided, "the district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." Plaintiffs assert this action "arises under" a law of the United States, i.e., ERISA 29 U.S.C. § 1132(a). Pursuant to ERISA:

(a) A civil action may be brought—

(1) by a participant or beneficiary—

. . . . .

(B) to recover benefits due him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;

. . . . .

(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or

(B) to obtain other appropriate equitable relief (i) to redress such violation or (ii) to enforce any provisions of this subchapter or the terms of the plan.

11 U.S.C. § 1132(a)(1)(B), (3).

Under the "well-pleaded complaint rule" a federal court does not have either original or removal jurisdiction over a case unless it is clear from the complaint that the claims arise under federal law. Even though a substantial federal question may be raised as a defense to the plaintiff's claims, federal jurisdiction only exists if the action "arises under" federal law. Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 2846-47, 77 L.Ed.2d 420 (1983).¹ Consequently, "a federal court does not have original jurisdiction over a case in which the complaint presents a state-law cause of action, but also asserts that federal law deprives the defendant of a defense he may raise, ... or that a federal defense the defendant may raise is not sufficient to defeat the claim...." Id.

The Supreme Court has also held that parties cannot avoid the well-pleaded complaint rule by use of the Declaratory Judgment Act. In Skelly Oil, 339 U.S. 667, 70 S.Ct. 876, the Court held that federal jurisdiction does not exist if the party seeking the declaratory judgment is in effect requesting a ruling on a defense based on federal law to a state law claim. The Court held:

To sanction suits for declaratory relief as within the jurisdiction of the District Courts merely because, as in this case, artful pleading anticipates a defense based on federal law would contravene the whole trend of jurisdictional legislation by Congress, disregard the effective functioning of the federal judicial system and distort the limited procedural purpose of the Declaratory Judgment Act.

Id. at 673-74, 70 S.Ct. at 880.

In Franchise Tax Board, 103 U.S.S.Ct. 2841, the California Franchise Tax Board filed a complaint in California state court against the Construction Laborers Vacation Trust, an ERISA approved benefit plan, alleging that the trust had failed to comply with tax levies issued under a California statute and seeking a determination of the parties' rights considering that the trust contended that ERISA pre-empted state law and that the trustees lacked the power to honor the levies. The trust removed the case to federal district court. The Supreme Court held that federal question jurisdiction did not exist because the action did not arise under a federal statute, rather the plaintiff sought a declaration regarding whether a federal statute was a valid defense to the action.

On the same day the Supreme Court decided Franchise Tax Board, the Court decided Shaw v. Delta Airlines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983). In Shaw, the state of New York passed a human rights law which forbade discrimination in employee benefit plans on the basis of pregnancy and passed a disability benefits law which required employers to pay sick leave benefits to employees unable to work because of pregnancy. Employers brought declaratory judgment actions seeking a determination that the New York laws were pre-empted by ERISA. The Court noted that full jurisdiction existed over the matter. The Court held:

The Court's decision today in Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 103 S.Ct. 2841, 77 L.Ed.2d 420, does not call into question the lower courts' jurisdiction to decide these cases. Franchise Tax Board was an action seeking a declaration that state laws were not pre-empted by ERISA. Here, in contrast, companies subject to ERISA regulation seek injunctions against

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